The variance risk premium represents the compensation paid to index option sellers for the risk of losses following upward movements in realized market return volatility. Common wisdom connects these spikes with elevated uncertainty on economic fundamentals. I incorporate this link within a...

Reduced-form models of default calibrated to expected default losses and comovements between default losses and an equity-based pricing kernel generate CDS spreads that tend to fall below historical values. In frictionless markets, resolving this credit spread puzzle requires credit-market...

Credit risk refers to the risk of incurring losses due to unexpected changes in the credit quality of a counterparty or issuer. In this paper we give an introduction to the modeling of credit risks and the valuation of credit-risky securities. We consider individual as well as correlated credit...

This study uses a comprehensive data set of VIX and CDS markets to propose pairs trading strategies that represent the dynamic relation between market risk and credit risk in an equilibrium framework with a common non stationary factor. This involves the analysis of price discovery between VIX...

Using a novel data set and new proxies for rollover losses and market illiquidity, this paper finds that market illiquidity affects corporate bond spreads beyond a liquidity premium through a “rollover risk channel”. This effect is economically significant during episodes of market...

This paper examines whether rollover risk is priced on corporate bond spreads. Using a novel data set and new proxies for rollover risk and market illiquidity, the empirical analysis developed reveals that market illiquidity affects corporate bond spreads beyond a liquidity premium through a...

This paper uses an exclusive proprietary data set of European Credit Derivatives and VIX markets, covering a sample of 5 to 7 years, to study the nature of the link between credit risk and market risk, widely acknowledged in the academic literature. This allows us to establish cointegration in...

The calculation of the capital charge for CVA risk, as required by the Basel Committee on Banking Supervision, is usually rather unstable due to the volatility of CDS spreads. Since credit derivatives on single names are not very liquid, the implied adjustments in capital charges could be...

Using a novel data set and new proxies for rollover risk and market illiquidity, this paper examines whether rollover risk is priced on corporate bonds. The empirical analysis developed in this paper reveals that market illiquidity affects corporate bond spreads beyond a liquidity premium...